How manufacturers can combat rising logistics costs
Strategies to improve your company’s logistics efficiency
INSIGHT ARTICLE |
Several trends including the truck driver shortage and growth of e-commerce are causing logistics costs to rise for manufacturing companies. Manufacturers are now faced with an additional pressure on their profitability and often face uncertainty about how to react. To help mitigate rising logistics costs, manufacturers need to rethink their supply chain transportation strategy to combat tighter trucking capacity, higher pricing and the impact of e-commerce’s growth.
Manufacturers can leverage the following strategies to address the key trends causing rising logistics costs and pressures.
Tight trucking capacity
The labor shortage, combined with new regulations such as the electronic logging device (ELD) mandate, has put immense pressure on trucking capacity. In recent years, the trucking industry has faced significant challenges with attaining and retaining talent. In fact, the American Trucking Association expects the driver shortage to create a loss of 239,000 trucks by 2022. For companies being affected by today’s tight trucking capacity, consider the following actions:
- Consider a dedicated transportation service or third-party logistics (3PL) to improve reliability in shipping via truck
- Engage in contractual agreements with a long-term supplier to lock down capacity for an extended period of time
- Consider alternative modes of transportation with looser capacity
- Source from smaller midsized trucking companies with available capacity
- If running a private fleet:
- Comply with labor rules and proactively schedule routes and the number of stops to increase employee satisfaction
- Invest in technology to improve the driver experience and to attract and retain talent
Limited trucking capacity in the marketplace has increased the pricing power of trucking companies. For manufacturers being hit by higher pricing, consider the following actions:
- Perform an annual bid or request for quotation (RFQ) process with specific lanes and volumes
- Consider a dedicated transportation service—a dedicated carrier will open a platform for collaboration geared toward achieving company goals and long-term profitability; shippers can therefore save money, but they may be best served by working more collaboratively with carriers and third parties to reduce costs across the board
E-commerce growth in the retail sector has added pressure to both consumer and industrial supply chains. The “Amazon effect” has shifted all customer expectations, with business-to-consumer (B2C) and business-to-business (B2B) customers now conditioned to expect fast, easy shipping. For companies struggling to keep up with customer expectations and demand, consider the following actions:
- Perform logistics network modeling that makes use of optimization technology to consider geographical demand and supply, costs, constraints, capacities, and business requirements to reach an optimal solution that fits the business environment
- Leverage strategies such as zone skipping and freight consolidation
- Establish key performance indicators (KPIs) and reporting to benchmark progress and out the door (OTD) performance
Additional questions to weigh
When evaluating logistics costs overall, manufacturers should focus on five common components: people, process, systems, facilities and equipment. Weighing the below questions can help companies to ensure their logistics strategy is optimal and efficient:
- People: Is your organization structured appropriately to support strategic goals?
- Process: Do you have the right operational processes in place in order to drive efficiency and improve performance? Are they adequately documented? Is effective training in place?
- Systems: Do you have the right systems for planning, execution and reporting? Can you effectively communicate with your trading partners? Are you employing the right platform and infrastructure to meet your long-term goals?
- Facilities: Do you have appropriately designed facilities in the correct locations? Are capacity and utilization adequately positioned?
- Equipment: Have you selected and employed the most appropriate equipment for your physical operations? Is it properly maintained and utilized?
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